On the 25th July 2014, EIOPA issued a document representing the underlying assumptions of the standard formula used for the Solvency Capital Requirements calculations (SCR). The standard formula for SCR aims to capture the material quantifiable risks that most undertakings are exposed to. The standard formula might however not cover all material risks a specific undertaking is exposed to. A standard formula is, by its very nature and design, a standardised calculation method, and is therefore not tailored to the individual risk profile of a specific undertaking. For this reason, in some cases, the standard formula might not reflect the risk profile of a specific undertaking and consequently the level of own funds it needs.
The document does not cover all risk modules of the standard formula, addressing the assumptions related to the risks covered by the respective modules as well as the assumptions for the correlation between the modules. The document was informally consulted with stakeholders in spring 2014 and revised following the comments received.
The document may be further amended as supervisory authorities and undertakings and groups gain experience with the use of the standard formula and the way undertakings and groups assess the significance of the deviation of the risk profile from the assumptions underlying the standard formula.
The document can be accessedby clicking here.